Compass Diversified Holdings to Sell New Preferred

Diversified manufacturing company Compass Diversified Holdings (CODI) has announced a new fixed rate preferred unit issue that will have a ticker of CODI-C when it begins to trade on the NYSE.

CODI is a limited partnership and thus any distributions are non qualified and the investor will receive a K-1 at tax time. Distributions will be cumulative.

The company has 2 other issues outstanding which can be seen here. These 2 issues have traded rather weakly.

The preliminary prospectus on the new issue can be seen here.

Thanks to If you Prefer and George for being on this one.

14 thoughts on “Compass Diversified Holdings to Sell New Preferred”

  1. I see both A and B shares were pressured down to 16 last year. Not a sign of strength IMO

  2. Barron’s has written favorably about the company twice in the past year. However, when I look at their financial statements – the company clearly does not cover the dividend and basically breaks even. With that being said, they do have a decent track record of buying and selling off companies with decent profits. Sold off a company earlier this year and made a very nice profit, but I’m still cautious on this one.

    Here is a link to their bond, per FINRA. Their 8% bond is rated B3/B-. Generally speaking, the preferreds are two notches below the bond rating.

  3. Coupon talk 7.875 to 8 so likely price at 7.75 is my guess given recent pricing patterns.

    1. Wow–I could have a little interest for a small position at this coupon.

  4. Tim, I own a good sizeable position of CODI-B. cumulative fixed/floating on 4/30/2018. The Flex term seems meager, 3 month LIBOR plus 4.985%. It does have decent hostile takeover clause with $25.25 etc. I first bought its A shares, non cumulative preferred with 7.25% CALL 7/30/2022 primarily because of its long dividend history of the Common dating back long with decent payment around 1/16/2007. It worked for a few months and then it tanked. Later I sold all my common shares plus some A with no net loss. Reinvested proceeds all to the B shares. Then someone at Silicon gave the 411 intel that Barons Mag recommended this one and Richard Hill, the late comer SA writer who has successfully IMHO used lots of good stats, plus Kiplinger Income Investing newsletter. It will all depend on the coupon, it seems. I made a lengthy post on Silicon. Someone just followed with a SHORT BRIEF POST. “It is SAFE”. Apparently the guy has lots of it and does not wish to make any negative comment. CEO, Chairman (I thought he is retiring) has many niche item small companies he funds. If the ones failed, it got swallowed by the ones which works. One SA article articulated that the General partner of Compass is double dipping, being the owner of the surviving small cap company participating his take plus the general partner. To me, Compass is sort of like our RILY the opportunistic LA small time broker (similar to LTS which is undergoing merger). I do believe that Compass is relatively safer. These guys have been doing this for a long time. Apparently it has a great quarter (I have not looked at it because so many Earnings Call Transcripts. Right now, I must looked at DS, market action seems very negative. All my best to you and your family. John

  5. For those interested, there was an article on Compass Diversified Holdings in the Nov. 4th issue of Barron’s.

    1. According to Barron’s article they are guiding 2019 earnings of $1.60 on which they will pay out $1.44 in dividends on the common, leaving $0.16 to cover obligations on the two outstanding preferreds, not to mention the new preferred not yet issued. Am I missing something here?

      1. Richard, the preferreds have payment priority over commons. You have it backwards. In theory (setting aside borrowing, asset sales, etc.) if earnings arent sufficient, the common gets cut to ensure payment of preferred. If a preferred dividend gets suspended, the common must be suspended.

    1. Justin, with all my due respect, are you sure? CUSIP is the same as the current B shares. Unless it is reopening.

      1. Justin,
        You are almost correct. I called Fidelity Fixed Income after seeing the News section of the issuer, CODI, new issue of C. I called Fidelity Fixed income, begging him to check the Bloomberg Machine. After some wait, the new issue has 7.875%, same as the current B share. BTW, I should mention that the K-1 as most K-1’s except EVA (either a Yield Trap or One of a kind hidden jewel) will report GAIN as “guaranteed income” which is taxed at the same rate as ordinary income both for Feds and California State tax. No wonder that CODI down 5.3%, A down 1.33%, B down 0.63%. Fido person told me that it could be trading by Nov 20. I bet that it could be earlier. Looks like they have another losing quarter (on GAAP basis) but probably decent EBITDA quarter. I did make my post to Richard Hill, who preferred the non cumulative A share, probably due to duration risk that the B is better than A. I will have to carefully read Earnings Call transcript plus Q and A PLUS the 10-Q. BTW, DS has actually not so terrible Q but the 9 months vs. prior period does look bad. Common DOWN plenty, B share ot so much. I have only 200 shares of D. QDI. I will hold because the differential drop of B share (higher coupon, already callable) did not drop as much as D, which drops with substantially higher percentage. Illogical. Yep, it closed decent relative to the higher coupon. I probably will hold my B share CODI. I am very bad in buying preferreds on IPO these days. I do not see fantastic deals after missing the speculative SNFI, IMHO probably rated bad because of its financials but de facto okay due to using this bank offering all kinds of deals. I was not sure whether it would be like the JPM and ALl low coupon …. dropping like a falling leave or actually would stay or more like CITUP. Oh well. Live and learn, I suppose.

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